Release of the Petroleum Resource Rent Tax Review
Monday 1 May 2017 @ 12.49 p.m. | Legal Research | Trade & Commerce
On 28 April 2017, the Treasurer, Scott Morrison, announced that the Federal Government released the Petroleum Resource Rent Tax Review Report. The Treasurer has indicated that the report will form part of the the Government's consideration in the upcoming budget for 2017.
Purpose of the Review
According to the short note released with the Review, on 30 November 2016, the Australian Government announced a review into the operation of the Petroleum Resource Rent Tax (PRRT), crude oil excise and associated Commonwealth royalties to help better protect Australia’s revenue base and ensure that oil and gas projects are paying the right amount of tax on their activities in Australia.
The PRRT is a profits based secondary tax that applies to onshore and offshore oil and gas production in Australia. PRRT receipts averaged around 0.2 per cent of GDP through the 1990s and 2000s, peaking at almost $2.5 billion in 2000-01. Over the past five years, however, PRRT has averaged less than 0.1 per cent of GDP and is forecast to be around 0.04 per cent of GDP per year over the forward estimates period.
The review will advise the Government to what extent Commonwealth oil and gas taxes and royalties are operating as intended, having regard to the need to provide an equitable return to the Australian community from the extraction and sale of these resources without discouraging investment in exploration and development.
Terms of Reference for the Review
The terms of reference are set out below.
- The review will have regard to the need to provide an appropriate return to the community on Australia’s finite oil and gas resources while supporting the development of those resources, including industry exploration, investment and growth.
- The review will examine the design and operation of the PRRT, crude oil excise and associated Commonwealth royalties that apply to the onshore and offshore oil and gas industry, having regard to economic conditions in the industry and trends over time.
- The review will also consider the impact of previous policy decisions on Commonwealth revenue.
- Drawing on international experience, the review will make recommendations to the Government on future tax, excise and royalty arrangements having regard to revenue adequacy, efficiency, equity, complexity, regulatory costs and the impact on the industry generally.
- The review will also examine other related matters.
The review was issued in December 2016 and was led by respected economist Mike Callaghan AM PSM. It received 77 submissions in response with submissions closing on 3 February 2017.
Results of the Review
According to the Treasurer in his media release:
"The report highlights improvements that can be made to the PRRT over the longer term. It does not recommend changes to the crude oil excise or Commonwealth royalty schemes.
The report finds the decline in PRRT revenue does not, in itself, indicate the Australian community is being shortchanged in receiving an equitable return from the development of its resources. It also finds that the current scheme is not deterring investment.
It recommends scheme changes that impact beyond the current investment decision horizon; such as uplift rates, transferability and order of claiming deductions. In addition, the review has recommended minor changes that would apply to existing and new projects to improve the operation of the PRRT...
In considering the findings and recommendations of the report, the Government will take into account the need to ensure that the PRRT provides an equitable return to the Australian community from the recovery of petroleum resources without discouraging investment in exploration and development that is vital to the industry."
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